 Your skin or mine: Ensuring the viability of a central counterpartyMelinda Friesz and Kata Váradi Emerging Markets Review, 2023, vol. 57, issue C Abstract: Through their clearing and settlement activity, central counterparties (CCP) ensure the stability of the financial system. They operate a multilevel guarantee system containing the initial margin requirements, the default fund contributions, and their own contribution, referred to as skin-in-the-game (SITG). Using a Monte-Carlo simulation method-based framework, the study examines how the value of SITG changes in different guarantee system settings, specifically through the implementation of a merged, separated, or partially separated guarantee system for interconnected markets. The primary objective is to quantify the minimum amount of SITG necessary for a CCP to protect non-defaulting members or to prevent the execution of the CCP's recovery and resolution plan. The findings indicate that a partially separated guarantee system is the most beneficial option for most stakeholders. Keywords: Central counterparty; Skin-in-the-game; Default waterfall; Monte-Carlo simulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:57:y:2023:i:c:s1566014123000791 DOI: 10.1016/j.ememar.2023.101074 Access Statistics for this article Emerging Markets Review is currently edited by Jonathan A. Batten More articles in Emerging Markets Review from Elsevier |
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